A Rival Offer for a Chunk of Rockefeller Center

By STEPHANIE STROM

Published: August 18, 1995

Tishman Speyer Properties L.P., a large New York City real estate development company, offered yesterday to buy a large chunk of Rockefeller Center and the $1.3 billion mortgage on the trophy property, which is held by a real estate investment trust.

The offer comes a day after an investor group led by the Chicago real estate magnate Sam Zell made a play for control of the 12-building center in midtown Manhattan. It offered to pay $250 million for a 50 percent stake in a new company that would jointly own the mortgage along with the existing shareholders of the current mortgage holder, Rockefeller Center Properties Inc.

The two offers signaled the start of what may become a battle royal for control of Rockefeller Center, which until Wednesday seemed a cherished but cumbersome pile of bricks and mortar mired in a tepid real estate market. Its owners have argued that its value is far less than the $1.3 billion mortgage implies, but several potential buyers have expressed an interest in the property since its owners filed for bankruptcy protection in May.

The Tishman Speyer deal takes a two-part approach to gaining control of the property. As head of an investor group that is likely to include the Crown family of Chicago, Tishman Speyer would buy a substantial stake in one of the partnerships that owns substantially all of Rockefeller Center, in essence becoming its partner. And it would pay $975 million to Rockefeller Center Properties Inc. to buy the mortgage and give the trust's shareholders a 21 percent stake in a new company that would be set up to hold the mortgage.

The deal would be part of a plan to bring the two partnerships that own Rockefeller Center out of bankruptcy protection.

In Federal bankruptcy court yesterday, where news of the Tishman Speyer proposal emerged, lawyers for the partnerships said they planned to file a reorganization plan by Sept. 12, when their exclusive right to propose a plan is scheduled to expire.

"We're coming in to acquire a large interest in the real estate as well as a large interest in the mortgage," said Jerry I. Speyer, president of Tishman Speyer Properties Inc., the general partner of Tishman Speyer Properties L.P. "We're bringing with us, too, the capital with which to carry this property and do the things that have to be done to maintain it as a world-class property."

Tishman Speyer has yet to get binding commitments for financing from other investors, but Mr. Speyer said he was confident that financing would be in place by Sept. 12. He declined to identify other potential investors, but noted that the Crown family had invested in many of Tishman Speyer's American partnerships.

Stephanie Leggett-Young, spokeswoman for the real estate trust, said the trust's board would review the Tishman Speyer proposal, but added, "We are moving forward toward a definitive agreement with the Zell investment group."

Mr. Zell, head of Equity Group Investments Inc., said he did not consider the competing offer a threat to his proposal. "I think the transaction we have entered into is a superior transaction for the shareholders because they will have a better opportunity to share in the upside of their investment," he said.

Mr. Zell's offer threw a lifeline to Rockefeller Center Properties Inc., which has received no payments on the mortgage since the center's owners filed for bankruptcy protection in May. The mortgage is the trust's only source of income, and as a result it is facing its own financial difficulties.

But Tishman Speyer's alliance with the owners of the property may give it a leg up, analysts said. The owner has one significant advantage, which is that it has the exclusive right to offer a plan of reorganization at least until Sept. 12.

"There may be a little more leverage in being on the owner's side," said Arnold Kastenbaum, an analyst at M. J. Whitman Inc., an investment firm that specializes in distressed companies.

Mr. Speyer declined to say how much Tishman Speyer would pay the Rockefeller Group Inc. for a "substantial" stake in Rockefeller Center Properties, one of the partnerships that owns Rockefeller Center. The Rockefeller Group Inc., which is owned 80 percent by the Mitsubishi Estate Company and 20 percent by the Rockefeller family trusts, owns both of the bankrupt partnerships.

Mitsubishi Estate and the Rockefeller family trusts, whose unwillingness to continue covering cash shortages at the property threw the partnerships into bankruptcy protection, would retain a small stake in Rockefeller Center Properties.

Tishman Speyer values the rest of the deal at $1.235 billion -- consisting of $975 million to buy the mortgage from the real estate trust, a 21 percent stake for the trust's shareholders in the new mortgage holder, and cash that Rockefeller Center Properties can use to pay for operations of the center after bankruptcy.

But Tishman Speyer refused to place a value on the equity stake it is offering the trust's shareholders or to specify the amount of cash available for financing operations.

Its unwillingness to lay out those numbers raised questions among some of the trust's big shareholders and creditors, who said the shareholders might get less than current market value for their holdings under the Tishman Speyer proposal.

Mr. Kastenbaum at M. J. Whitman estimated that under the proposed deal, shareholders would receive $7.38 a share in cash and new equity on a fully diluted basis for each share of Rockefeller Center Properties Inc. they now hold. Yesterday, the shares closed at $7.625.

Shareholders in the trust would not get a stake in the property itself, meaning that they could not participate in any appreciation in its value, a chance they have under the current terms of the mortgage and would have if the Zell investment group got control of the property through foreclosure. Many real estate experts estimate that Rockefeller Center would be far more more valuable than $1.3 billion if it were broken up and sold in pieces.

Nonetheless, Mr. Speyer contended that his deal was the best one for the trust's shareholders. "They're getting cash sans any risk, which is significant," he said.

Photo: Jerry I. Speyer. (Sara Krulwich/The New York Times) (pg. D1) Chart: "Vying for Control" On consecutive days, two plans for reorganizing Rockefeller Center have been put forward by rival investor groups. Both plans hinge on who controls the mortgage on the center, the only asset of a publicly traded real estate investment trust that is struggling to avoid bankruptcy. Chart outlines the competing reorganization plans. (Source: Company reports) (pg. D2)